Q1 2023 Metro Inc Earnings Call

Speaker 1: Good afternoon ladies and gentlemen and welcome to the Metro Inc. 2023 First Quarter Results Conference Call. At this time, all participant lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session.

Speaker 2: to say risks that could have an impact on the business, operation, project, synergies and performance of the company. We believe these statements to be reasonable and pertinent at this time and represent our expectations. The company does not intend to update any forward-looking information as required by applicable law. I will now turn the call over to Francois. Thank you Charron and good afternoon everyone. Total sales for the quarter were $4.7 billion, an increase of 8.2% over last year, which made food sales up 7.5% in the quarter and pharma sales up 7.7%. Our gross margins stood at 19.6% of sales versus 19.9% in Q1 last year, the decrease mainly the result of higher cost of goods sold in food, a portion of which we absorbed. Operating expenses stood at $458.2 million or 9.8% of sales versus 10.2% of sales in the same quarter last year. The decrease in SG&E ratio is mainly due to good cost control and good leverage on a high level of sales. If it does for the quarter, total $462 million, that's up 8.9% year over year and as a percentage of sales, if it does with 9.9% versus 9.8% last year. Total depreciation and about the addition expense for the first quarter was $120.1 million versus $112.5 million for the same quarter last year. The increase reflects the additional investment in supply chain and logistics as well as in store technology. Adjusted net earnings were $237.6 million compared to $214.2 million last year.

Speaker 3: a 10.9% increase and our adjusted net earnings per share amounted to $1.00, that's up 13.6% versus last year's adjusted EPS of $0.88. After one quarter, capital expenditures amounted to $129.3 million versus $141.5 million last year.

Speaker 4: As mentioned on our previous call, we are planning a record level of capex this year of about $800 million resulting mainly from our ongoing investment in the modernization of our supply chain in both provinces.

Speaker 5: On the retail side, we opened two new supercedes this quarter, one in Saint-Germain and another in Boula-Noi, and we also carried out major renovations in three metro stores, representing a net increase of 100,000.4 square feet, or 0.5% of our food retail network.

Speaker 6: On November 18, we renewed our normal course issuer bid program, enabling us to repurchase 7 million shares between November 25, 2022 and November 24 of this year. As of January 13, we had repurchased 696,000 shares for a consideration of $52.2 million.

Speaker 7: representing an average share price of $74.94.

Speaker 8: In closing, the Board of Directors yesterday declared a quarterly dividend of 30.25 cents a share or $1.21 on an annual basis and that's an increase of 10% versus last year. This is the 29th consecutive year's dividend growth and represents a payout of about 31% of last year's.

Speaker 9: adjusted net earnings in line with our policy.

Speaker 10: earnings in line with our policy. That's it for me, I'll turn it over to Eric.

Speaker 11: Thank you, Francois, and good afternoon everyone. We delivered solid results in the first quarter in a very competitive and challenging operating environment, with a growing market share driven mainly by our discount banners.

Speaker 12: As inflationary pressures persist, our teams did a good job to provide the best value possible to customers in our stores, pharmacies and online.

Speaker 13: For the quarter, total sales grew by 8.2%, adjusted EBITDA by 8.9% and adjusted EPS by 13.6%.

Speaker 14: Food SAME store sales were up 7.5% compared to a decrease of 1.4% in the same quarter last year.

Speaker 15: Our internal food basket inflation was 10%, same as that in the last quarter.

Speaker 16: Compared to last year, traffic was up while the average basket remained flat.

Speaker 17: Not surprisingly, customers are searching for value and promotional penetration continues to increase and private label sales growth is outpacing national brands.

Speaker 18: Discounts continue to outperform conventional and we are well positioned to capitalize on this trend with our Super C stores in Quebec and Food Basics in Ontario.

Speaker 19: We are accelerating the growth of our discount footprint with the opening of two new supersedes this quarter and two more plans for fiscal 23 in addition to food basics.

Speaker 20: Pharmacy comparable sales were up 7.7% and 16% over two years, with a 6.5% increase in prescription drugs, helped again by COVID-related activities, such as the distribution of rapid tests.

Speaker 21: Front store sales were up 10.2% driven by strong growth in the over-the-counter medications due to cough and cold symptoms, as well as strong sales of cosmetics and health and beauty products.

Speaker 22: Our online food sales were up 40% for the quarter as we continue to grow by expanding our service coverage and adding more capacity to meet evolving customer needs.

Speaker 23: This is being accomplished by adding new markets, the roll-out of Click&Collect to our SuperC stores and expanding our presence on third-party marketplaces such as Corner Shop and Instacart offering two-hour delivery.

Speaker 24: We are pleased that the Metro Online Service was ranked number one in grocery in the most recent Léger Digital Wild Index.

Speaker 25: As we begin our second quarter, market challenges and inflationary pressures persist, and our focus remains on delivering value to our customers while executing on our strategic priorities.

Speaker 26: We can't predict future inflation as many vendor requests.

Speaker 27: where price increases continue to come in and the root causes outside of our control are still present.

Speaker 28: However, we will be cycling high inflation figures recorded last year in the second half of this fiscal year and we would normally expect inflation to moderate later this year. Again, we don't make predictions.

Speaker 29: Metro is proud of its commitment to reduce food insecurity in our communities. Last week we announced that the company donated $50 million worth of food in fiscal 22 to food banks in Quebec and Ontario, equivalent to 9 million meals, in addition to giving $5.5 million to different charities.

Speaker 30: and also raising $6.8 million in our networks thanks to the generosity of our customers.

Speaker 31: Moreover, in November and December we held our first Healthy Together campaign and raised an additional $2.2 million from generous customers and Metro donated $550,000 to our long-time food bank partners.

Speaker 32: To conclude, we continue to execute on our business plans to deliver a strong value proposition to our customers, invest in our retail network and infrastructure, and support our communities.

As the company proudly celebrates its 75th anniversary, we look forward to continued growth and success for all stakeholders.

Thank you and we'll now be happy to take your questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by two. And if using a speakerphone, we ask that you lift the handset before pressing any keys.

Please go ahead and press star 1 now if you have a question.

And your first question will be from Kendrick Tai at ATB Capital Markets. Please go ahead.

Thank you and good afternoon. Eric, why don't you provide some insight into the relative performance of discount in Quebec versus Ontario, or if that's getting a little too specific, perhaps you've brought some insight into sort of the consumer behavior in each of those two markets and how you've seen that evolve in the face of the macro pressures.

As I said in my opening remarks, discount continues to outpace conventional. It's been the case for several quarters. It continued into Q1. Both Quebec and Ontario, our discount banners are growing.

very nicely. Similar growth I would say so I won't give you more color than that but we're pleased with our overall performance and we're pleased with our relative performance versus competitors either in discount or in conventional. So yes conventional is trailing behind discount but

holding its own versus peers and discount is doing well in both markets.

Consumer behaviour is more of the same in this high inflationary period. Our features and specials are selling more and more every month. So people are looking for value and stretching their dollars, no big surprise. Our teams are working really, really hard to provide the best value.

to do our best to do that.

Thank you Eric, that's great. If I could just switch to pharmacy for one more quick question. Flu season had a very big start. It also appears to have perhaps tapered quicker than some had expected. Could you provide an insight as to just how material flu season was in quarter and how you were thinking about the impact?

of this performance on OTC given the tough comps going forward.

of this performance on OTC given the tough comps going forward. Thank you.

Well, yeah, thank you for the question. So the flu season, you could call it a tridemic, pandemic. It's the flu, it's respiratory viruses, it's continued COVID, causing a lot of coughs and cold flu-like symptoms, which is generating traffic to our stores and generating OTC sales at higher than normal.

that answers it.

It does. Thank you Eric. Congrats on the call. I'll get back in queue.

Thank you.

Next question will be from Irene Natal at RBC. Please go ahead.

Thanks and good afternoon everyone. Just looking at the income statement with the pressure on both gross margins and on SG&A or SG&A down, like one offsetting the other, can you talk about to what degree that's the result of the mix shift towards discount?

and what you're seeing just on the cost side in general and how we should be thinking about cost pressures as we move through F23.

So the gross margin decline, again like we said in the last few quarters on the food side we've seen a decline of our gross margin. It was offset by pharmacy and cosmetics and the like in the previous quarters. In this quarter the food decline...

was a little more and overall was not completely offset by the pharmacy performance which was quite strong.

So, the gross margin is caused by a higher cost of goods sold that we are not passing completely to consumers at retail for competitive reasons and for market reasons. They are very competitive out there. There are price points that we...

we can't get to or we can't pass on the regular shelf price and also on promotion. So that's causing an impact on gross margin. The higher feature penetration in all of banners, discount and conventional is also impacting the gross margin.

Produce this past quarter was a challenge. You've all read about the weather conditions in certain areas where we get supply in California and others.

Very challenging, very volatile markets, high prices that we can't pass on. So gross margin in produce suffered in all of our banners, discount and conventional.

And last, you say the mix to discount. Yes, as discount sales grow faster, it's a lower gross margin business and it also has an impact.

It's not just one thing, it's a combination of factors.

So the good news is I think our sales performance is strong, our market share performance is very healthy. So I think our value proposition resonates with customers. And our expense control was good in the face of high inflation on the cost side too.

So there was a bit of leverage there where expenses grew at a slower rate than sales grew, so the SG&A rate went down, which offset the decline in gross margins. So, pleased with that, but it's a challenging operating environment and it takes a lot of attention and experience to maneuver, that's for sure.

Absolutely. So if we're thinking about the magnitude, Eric, of cost increases for this year, you know, minimum wage, et cetera, should we be thinking sort of low-mid single digits on the cost side? That's the first part. And then the second part is, what's the magnitude of the vendor?

price increase request that you're getting at this point.

I'll start with the vendors and take the cost side. We explained and it was covered in the media that we have an effective blackout from November 15 to about February 1 where we don't accept cost increases. But that doesn't mean that the cost increases are not there and are not coming.

the rate of increases because we want to protect its customers and protect the pricing at retail. But there are increases coming. The root causes of worldwide food inflation are still there and we're going to have to accept some of these increases.

Hopefully we will manage to mitigate it as best we can. There is more of that ahead while we will remain always competitive in a very competitive marketplace.

On the cost side, plus what? I think your low single digit up to mid is not an unreasonable assumption. This quarter, you over here are OPEX grouped by 4.2%. So when your top line is 8.2, then obviously the...

that will be met by good leverage on a high level of sales. Across the board, increases in labor, maintenance, energy supplies, publicity, these are all increases but they were smaller increases than top line.

That's what we mean by good cost containment, but that's going to be our job going forward, is to make sure that we have visibility and that we manage those costs, and we'll have to show the same discipline that we've shown in previous years. Because that's a... Inflationary environment does not just affect the gross margin, it affects the oil patch as well.

That's great, thank you. And also thank you for calling out all of the donations of food donations into the community. We all know how important that is right now. Thank you.

That's great, thank you. And also thank you for calling out all of the donations of food donations into the community. We all know how important that is right now. Thank you. Thank you.

Next question will be from Peter Sklar at BMO Capital Markets. Please go ahead.

Yeah hi Francois, just following up on that comment about growth rate and OPEX costs.

So the 4% growth was pretty good. Is there anything coming up in 2023? Could there be a large labor contract or an unusually high number of labor contracts that are coming up that could inflate that number?

those labor contracts is a kind of smooth curve as they mature.

There are a lot of components to that OPEX, so there's not one big number that can make or break the year. I think there are always labour agreements coming due for negotiations. There are several contracts, the transport, supply, etc. ——

renew. So it's going to be several components that we have to keep a very close eye on and make sure that we contain the increases in line with the top line growth.

So what's uh that's that's nothing unusual this year versus other years

But labour pressures remain. Quebec announced a 7% increase in the minimum wage, so that gives you an indication on the labour side there's pressure. We expect that to continue, but to your question is there one single event that's going to make a difference?

a huge difference between 22 and 23. As Francois said, there's not one single thing, but there are pressures in the system on the expense side. Labor is our biggest expense, so we manage as best we can. There are rate increases. We have technology. We manage productivity. We

We manage that as best we can, but there's clearly pressure in the system.

Okay, and a different question. Eric, from your comments, it sounded like...

Like discount is strong and you picked up, you felt you picked up market share and discount.

I'm just wondering and it sounded like you picked up market share in both Ontario and Quebec and I'm just wondering what you attribute that to. Did you have any particular promotions that worked well or is there anything you could attribute to or just daily blocking and tackling and merchandising?

It's daily blocking, good merchandising, the right product, the right week at the right price in a challenging environment with all the inflation that everybody talks about, good execution at store level.

It's a total package and I'm pleased with the performance. Like I said, our discount banners are growing and a little better than the competitive set in discounts. I'm pleased with that.

Our price indices versus the market are very competitive. We monitor that very closely. We have a strong private label program that's resonating well these days for sure. Private label sales are growing significantly faster than general sales.

So, Discount, as you know, sells more private label as a percentage of their sales. That's all in there to contribute to the good performance.

Stores are in good shape. We have the renovation program every year.

We renovate stores, expand others.

The physical plant, if you call it, is in good shape.

and super C and food basics. I think that helps too over time.

So a bunch of factors, but good execution.

Okay, and then just lastly a question on your online business. You touched a little bit about your comments Eric, but you had a very high growth rate in online sales at a time when consumers are generally returning to store. Like what is the larger factor that caused that huge discount? Is it because you introduced your click and collect into discount?

The largest contributor was Partnerships, expansion of the Partnerships third-party marketplaces.

So we've added markets and banners to...

to Instacart and to Corner Shop in the case of Ontario. So those are the largest contributors to our online growth.

Our hub stores are pretty consistent. Flick & Collect is growing but not at a crazy pace.

I think our multi-service model where we have our own platforms, we can collect home delivery either same day or next day and the short window immediate delivery with third party partners is serving us well and enabling us to capture our fair share of online text.

And these partnerships, do they positively or negatively impact margin?

Well, let's just say an online sale is a lower margin sale than an in-store sale?

Let's just say an online sale is a lower margin sale than an in-store sale?

be clear on that. But for those customers that expect online service, we are there to serve them and to provide the offer. Is it short term or next day? We're click and collect.

It's a piece of the market, not a very big piece of the market, but we want our fair share. So that's why we have the offer we have.

Okay, thank you.

Thank you.

As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone phone.

Your next question will be from Mark Petrie at CIBC. Please go ahead.

Yeah, good afternoon. Just to follow up on a couple things. First, on the gross margin, is it fair to say that the gross margin performance in the pharmacy business was consistent in Q4 versus – or sorry, in Q1 versus Q4?

Yes.

Okay, and I also wanted to ask about sort of how supply chains are affecting your business today. I mean one of the dynamics over the last couple years is, you know, we've heard of low service levels for manufacturers and you know, them reducing their SKUs to sort of ease some of those challenges on their side. How has that evolved and what's the sort of state of that today for you?

We are still on allocation with certain vendors in certain categories. So in an evolving situation, the assortment reductions or production reductions by certain vendors, as far as I know, it's not that much better. We are still concentrating on our best selling items to ensure supply.

So, that remains. So you can still see holes on some of our shelves. Most of them are vendor related. Some of them are self-inflicted for sure sometimes. But net-net, the supply chain service levels from our vendors has improved, but we're not quite where we want to be.

And does that affect the promotional tactics that those customers or those suppliers may be adopting or how do you look at that dynamic with regards to product availability affecting promotional tactics?

Clearly it does. Our merchandising teams...

Sometimes they want to advertise a certain product at a certain price and they can't do it because they're not going to get supply. So when I say we're on allocation, sometimes it means that we can't advertise XYZ product the week we want to. So it's again, collaboration and discussions with our vendors to be able to serve our customers, but it is a factor that's affecting merchant.

behavior in the competitive market.

Well, it's extremely competitive. All banners, be they conventional or discount, want their fair share and are promotionally aggressive. The regular prices, there's a difference. The base shelf price, there's a difference. Promotional

emotional activity like I said is strong in both formats.

in strong in both formats by all competitors.

So...

Does it create reactions? So yes, when discounts are growing more, some conventional competitors can become more aggressive, which affects the whole market. So it's a reality that's always been a factor. And that's why we say we're well positioned with both of our banners.

I think we're very competitive in pricing with our competitors and the price checks we consistently do prove it. Our price indices are where they need to be. So when I look at our sales performance and our market share performance, I think we're

It's proving that it resonates with our customers.

Yeah, indeed. Okay, appreciate all the comments. All the best.

Thank you.

Next question will be from Michael Van Ous at TD Securities. Please go ahead.

Hi, good afternoon. I wanted to ask first on your unit volumes. Last quarter you......

you indicated that you were still seeing unit volume growth even though inflation was...

was higher than your same store sales. So I'm curious if that was still the case this quarter and how you're explaining that gap, like what are the biggest factors explaining that gap?

Well, our data and information are kind of just about flat this quarter, year over year.

Okay. Okay.

You wrote about that Michael, family size, private labels, so the gap between the total dollar sales and the inflation that we report does not...

equal tonnage. It's a little more complicated than that. So we look at units that go through the cash, we look at cases shipped from our warehouses and all of our markets, and this corridor of tonnage was about flat.

That's what I can give you.

Okay, thank you. And then on the gross margin, one thing I didn't hear you talk about was shrink and I don't think you mentioned it in a while. I'm wondering if shrink is becoming more of an issue with prices the way it is. You hear about increasing in social media and that. I'm wondering if that's something you can actually see.

And then on the gross margin, one thing I didn't hear you talk about was shrink. And I don't think you mentioned it in a while. I'm wondering if shrink is becoming more of an issue with prices the way it is. You hear about increasing in social media and that. And I'm wondering if that's something you can actually see.

Well, I called out produce as a contributor to gross margin decline in all of our formats and food.

So the high cost and the volatility in pricing for vegetables, in particular fruits also, led to some, you know, we try to manage the sticker shock as much as we can, but we certainly can't recoup all the increases we're getting.

So that's causing some decline. And there's also a sticker shock that can lead to shrink in store. So in our produce departments, for sure, shrink was a little higher. But I wouldn't call it out as the biggest main source of all the decline.

It was a contributing factor. But even more than that, the whole base pricing and promotional pricing in produce in the environment of the last quarter was a bigger factor than shrink.

That's the way I put it.

Okay, so you're not going to be adding RFID to the tomatoes.

Go.

Okay, and then finally, can you talk about the benefits you're expecting to see from your modernized supply chain and you know one

what's the timing roughly that we can expect to start seeing that?

Okay, so we have done projects that are up and running, phase one of fresh fruits and vegetables in Toronto and the freezer which is fully automated in Toronto. So we are seeing productivity gains, cases per hour.

the throughput, we're doing more volume with less people in those warehouses, especially in the automated, frozen warehouse. Very happy with our performance there.

We're head of plan on productivity so that bodes well. The gain in efficiency is more volume with less hours so better productivity.

better assortment, better freshness for consumers, and more efficiency at our end.

We are bringing in-house some of the direct-to-store volume that is done by third parties. So again, that enables some savings for us.

We're treating the merchandise so we have expenses for it, but as part of the whole thing it's more efficient and less.

less deliveries to our stores, which generates some savings at store level too.

So, you know, it's a big project, a lot of change management, but we have a very good team managing it.

It's a lot of work, but we're pleased with our progress and we're looking forward to opening Terban, which is fresh meat, fish, dairy in Quebec 600,000 square feet plus fully automated also and that starts up in September .

It's going to be gradual and we're not going to be a record productivity day one, but we're confident that we can get the same kind of results that we're getting.

Toronto.

So we're pleased with it. Thank you.

Okay. All right. And then just final question is, in Q4, you had...

an 8% increase in your OpEx but excluding the gain that you had there was more like a 10.7% increase and then now this quarter your year-over-year increase is 4% yet your top line is growing around the same pace.

Can you explain the difference in that growth rate? I do believe you said something about catching up a little bit in cost last quarter but I didn't seem like they were one time in nature so maybe you could explain the difference in those two growth rates and how much in Q4. I know you're right that Q4 we called it out it was a it was we had

deleverage if you will. And I did say that in some of these contracts there was a bit of a catch-up with respect to inflation that was not reflected last year or the beginning of fiscal 22.

I did say that in some of these contracts there was a bit of a catch up with respect to inflation that was not reflected last year or the beginning of fiscal 2022.

This quarter was much better and we intend to continue that discipline to make sure that we can contain those costs as sell growth decreases eventually when we comp higher inflation at the latter part of the year. But you're right, we had a couple of the...

A couple of contracts, a couple of components that were higher than normal last quarter.

Okay, so this Q1 growth rate.

And rate as a percentage of sales is more reflective of what we should expect going forward, except for once we get to Q4 and you're lapping that high number, you should see a little bit of relief, I guess. Listen, it's really hard to predict. Our job is to make sure we have visibility on the contracts that come due.

We go for a pretender, we negotiate, we try to contain that those costs increase as much as possible given the top line. And I think that's what we've demonstrated in previous years and will continue to do this year.

Great. Thanks very much.

Thank you. Once again, ladies and gentlemen, if you have a question, please press star followed by taken.

And next question will be from Chris Lee at Desjardins. Please go ahead.

Hi, good afternoon. Eric, just maybe a follow-up to your answer to Mike's last question about the benefits from the DC modernization. I'm just curious, do we see most of those benefits being reflected in this quarter's results or are the majority of them still to come?.

As the DCs gain more experience, they get better and better.

Every quarter or certainly every year, the D.C.s that we open, 1 in 21, 1 in 22, will continue to improve. So I think there is more ahead of us. The project in Quebec gradually will ramp up and we're confident we'll deliver efficiencies as it matures.

Then we go back to Toronto with phase 2 of fresh which will be more automated. We're looking for efficiency gains over there too. I wouldn't say we've all captured it. I think we will continue to improve gradually.

go back to Toronto with phase two of fresh which will be more automated so we're looking for gains over there too. So I wouldn't say it's all we've all captured it I think we will continue to improve gradually and reach our objectives.

These are long-term projects. It's a lot of work. It's not easy to start a new DC with a new DC.

new technology, new warehouse systems, new everything.

new ways of doing things. The team has done a good job. Always hard at first but it will serve us well. I'm confident at that.

Okay, that's helpful. Thanks for that. I think you mentioned at the AGM this morning that like last year you received something like 27,000 price increases with an average ask of more than 10%. I know you're continuing to get price increases this year. Just curious, what is the average ask in terms of price increase this year? Is it more in line with a historical average?

I don't have a precise number for you. Discussions are ongoing. We are trying to manage these cost increases as best we can to make them progressive and over time. We have conversations with our vendors as we speak.

increases have been accepted and we'll start to materialize at retail in the coming weeks.

I'd rather not say an average percentage, but there's still, like I said, the root causes of worldwide food inflation are still present for the most part, and some of our vendors are...

through that and their costs are going up and they're looking for increases. So mid to high digits, single digits, double digits, it really depends by category, by commodity, so I don't want to make a general statement here. Every pressure pressures are persisting.

Okay, and is it fair to assume just maybe a quick one on gross margin that, you know, most of the gross margin pressure that you saw in Q1, is it fair to assume that they will continue in the foreseeable future? And I know you don't give guidance, but directionally speaking is the 30 basis point decline in Q1.

Is that a reasonable downgrade for Q2 or do you expect that to improve or accelerate in the foreseeable future? It's hard to predict a precise number. We have to be competitive and we want to protect our market.

But we've said all along, we've been saying these inflationary pressures put pressure on margin, there's no question about it. And every quarter in fiscal 2022, our gross margin of food was slightly down year over year, made up by pharmacy. So nothing new this quarter, it was just a little more pronounced perhaps.

previous quarter. So if inflation pressures persist, it does put pressure on margin but I think the team is doing a good job both in terms of growing the dollars of margin as opposed to necessarily the percentage and making sure that we contain costs. So overall when you look at the performance, I think we're very pleased with that.

Okay, that's helpful. And maybe a last one for me just on prescription drugs. You know, as the industry approaches the end of the 5B agreement between the government and the generic drug manufacturers in March, are you hearing any update from the government or what are your expectations? Will you get a new agreement by then? Just any update.

for the...

ethical drugs. So discussions are ongoing.

The price reductions that have been mentioned are not, we're not there yet. We're trying to make everybody understand that.

The distribution model of drugs is based on the price. So in these inflationary times where costs are going up for everybody, manufacturers, distributors, it's very hard with the distribution economics to say that a price reduction can happen just like that.

It would have an impact on inventories, it would have an impact on service levels. Discussions are ongoing, negotiations are ongoing and hopefully we'll come to a solution where –

If price reductions are negotiated, it will be offset somehow for distribution.

It would have to be.

Okay, great. Thanks. It was very helpful and all the best.

Thank you.

Thank you. At this time, we have no other questions registered. Please proceed with closing remarks.

Thank you.

We will speak again soon to discuss our second quarter results on April 19. Thank you.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.